When is the last time you heard politicians complain about China? About its human rights record, its currency manipulation or how it is quickly buying and taking control of natural resources in Africa and everywhere else. Sure there are a few taking shots but most of them are staying rather quiet. Why? Believe me, it has nothing to do with China behaving any differently (and in many ways, I would argue they shouldn’t have to but that is for another day). It could also be caused by the fact that our politicians have many other things to worry about. It might be a small part of the story but there is more.
Is China About To Take Control?
We all knew that China was eventually going to dominate the world. In terms of culture and military power, China is making some progress but where the big progress is being made is in economical terms. For one, the actual economy is now the world’s second power and while its GDP per capita still lags severely many countries, as a whole, China is becoming a critical part of the world economy. Even more important however is how China’s huge cash and short term holdings are quickly becoming a life saver. The US government continues to accumulate huge deficits and its growing debt is being financed in big part by the Chinese. Would they ever stop buying US debt? It’s highly unlikely but even reducing those holdings slightly could have a dramatic impact on interest rates in the US and thus the entire US & world economy. Everyone knows it but there are few benefits to openly admitting this fact simply because there is little wwe can do for now (except reduce benefits).
Another huge benefit to China is that its cash reserves can be used to gain both political and financial power by buying assets around the world. Italy is said to be trying to convince the Chinese government to buy its government bonds? Why? Because after Greece, Poertgual and a few smaller countries, Spain and Italy will be the ones under severe pressure. As you can imagine, we are not talking about a few million dollars. The Italian government is looking for the Chinese to buy “significant” quantities of Italian bonds. These negotiations are being done with high level officials and you can be sure that China will only do this deal if it makes sense financially but also if it can gain some kind of power.
Should We Be Scared?
Honestly, I’m not sure how to feel about all of this. China has generally been acting well but we knew how things worked when the US seemed in control of things. How different will things be when the Chinese are in power? Difficult to say. What are your thoughts on China’s growing power in the world economy and do you think China helping to save Europe (and thus the world) from a new major financial crisis would be an entirely good thing?